March 2 (Bloomberg) -- A long-awaited environmental
assessment of TransCanada Corp.’s Keystone XL pipeline cheered
oil executives who see it as a signal the Obama administration
will approve a project that has come to be viewed as a fight
between jobs and the environment.

The draft assessment, released yesterday by the U.S. State
Department, makes no recommendation as to whether the Keystone
pipeline should be built, and an administration official
cautioned the report was a work in progress.

On at least one main point though -- that the $5.3 billion
project won’t worsen the risks of global warming because
Alberta’s oil sands would be developed anyway -- the analysis
represents a clear win for the oil lobbyists and a loss for
environmentalists who applauded Obama’s pledge to fight climate
change in his second inaugural and State of the Union.

“The fact that they came out and said, ‘Eh, it doesn’t
really effect the oil sands development,’ to me this is a
prelude to approval,” said Sarah Emerson, president of Energy
Security Analysis Inc. in Wakefield, Massachusetts.

Environmentalists view the Keystone decision as a test of
Obama’s sincerity about making climate change a priority in his
second term after failing to advance legislation to cap carbon
dioxide in his first. The administration is also scheduled to
release final rules that for the first time will restrict
greenhouse gases on new power plants, and the EPA will then face
legal and political pressure to issue related standards for
existing plants. It is also considering regulations for a
drilling technique known as hydraulic fracturing, or fracking,
that has boosted the nation’s energy production but raised
concerns about air and water pollution.

September Decision

The draft analysis released yesterday, which sets in motion
a series of reviews that pushes a final decision to September,
examined the revised route TransCanada proposed after Obama
blocked an original path amid concerns it posed a threat to an
aquifer in Nebraska. On that issue, too, the report found that
the risks were minimal with the new route.

“We’re looking for feedback now from the public to help us
shape this going forward,” Kerri-Ann Jones, State’s assistant
secretary for oceans and international environmental and
scientific affairs, told reporters yesterday on a conference
call. The agency is conducting the review because the pipeline
would cross an international border.

After the State Department receives the comments, it must
compile its final environmental statement and then would have
two months to decide whether to issue a permit. After that the
project goes to Obama for a final sign-off, which could come by
the end of September, according to pipeline opponent 350.org.

TransCanada Reaction

For TransCanada, which has spent years developing the
project and lobbying in Washington for its approval, the draft
analysis represents another cleared hurdle.

The draft report is “an important step towards receiving a
presidential permit for this critical energy infrastructure
project,” TransCanada Chief Executive Office Russ Girling said
in a statement.

TransCanada fell 0.5 percent to C$47.81 ($46.56) at 4:30
p.m. in Toronto. The shares have climbed 7.4 percent this year.

The pipeline is designed to carry about 830,000 barrels a
day of tar sands fuel from Alberta and oil from shale rock
formations in the U.S. to refineries in Texas along a route that
would traverse six Great Plains states. The administration has
previously given approval for the pipeline’s southern leg to
relieve an oil glut in Cushing, Oklahoma.

Washington Rally

There was little evidence yesterday’s analysis would end
the controversy surrounding the project. A crowd estimated by
organizers at 35,000 rallied Feb. 18 in Washington against
Keystone, urging Obama to reject the pipeline.

“President Obama needs to match his soaring oratory with
climate action, and the State Department just made that
harder,” Michael Brune, executive director of the Sierra Club,
a San Francisco-based environmental group, said on a conference
call following the report’s release.

Representative Henry Waxman of California, the top Democrat
on the House Energy and Commerce Committee, in a statement said
the report was “seriously flawed.”

Senator Ron Wyden of Oregon, the chairman of the Energy and
Natural Resources Committee, said the latest review failed to
answer how the pipeline would affect U.S. consumers, and
Senator Barbara Boxer of California, who leads the Environment
and Public Works panel, said she remained “very concerned”
about Keystone and climate change. Both lawmakers are Democrats.

House Speaker John Boehner, an Ohio Republican, in a
statement called on Obama to approve Keystone.

Signals Approval

John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said the finding that
the project won’t significantly affect oil sands development
signals approval.

“It’s still a long way away, but at least there’s a
roadmap forward,” Kilduff said.

Environmentalists said they were disheartened by the
report’s findings. The pipeline would exacerbate climate-change
risks by promoting the use of Alberta’s oil sands, which
generate more carbon dioxide than most lighter crude, critics
say.

The analysis “reads like an on-ramp to justify the
Keystone XL pipeline project,” said Erich Pica, president of
Friends of the Earth in Washington. “We cannot solve the
climate crisis when the State Department fails to understand the
basic climate, environmental and economic impacts of the
Keystone XL pipeline.”

Emissions Impact

The analysis said that while oil-sands mining releases more
of the gases linked by scientists to global warming, rejecting
the pipeline won’t reduce the rate of development in the oil
sands or the amount of heavy crude refined in the U.S.

If both Keystone and the other proposed pipelines from the
tar sands aren’t built, the reduction in annual emissions would
be at most 5.3 million metric tons a year of carbon dioxide,
less than 0.1 percent of total U.S. emissions, the department’s
analysis found.

Oil and gas producers say the project proposed by Calgary-based TransCanada will create thousands of jobs and boost U.S.
energy security.

“This project will replace oil from Venezuela and the
Middle East with a stable continental supply, including from the
oil sands and improve the energy security of North America,”
Joe Oliver, the Canadian natural resources minister, told
reporters in Toronto.

Industry Comment

“No matter how many times KXL is reviewed, the result is
the same: no significant environmental impact,” said Marty
Durbin, executive vice president for the American Petroleum
Institute, a Washington-based group whose members include Exxon
Mobil Corp. “The latest impact statement from the State
Department puts this important, job-creating project one step
closer to reality.”

Bill Day, a San Antonio-based spokesman for Valero Energy
Corp., the world’s largest independent refinery by capacity,
predicted that the pipeline would be approved.

“Nothing that has come out in this report or any of the
others would be reason for even this delay, let alone a
denial,” Day said in an interview. Valero’s plants would stand
to gain work refining the tar sands if the pipeline is built.

A final decision won’t come until after agencies including
the Environmental Protection Agency get to comment. The EPA
found a previous draft environmental analysis for the original
Keystone route was “unduly narrow.”

Alternative Modes

The State Department concluded that without the Keystone XL
pipeline, alternative modes of transporting Canadian crude would
emerge.

One scenario assumes the construction of new rail-loading
terminals in Lloydminster, Saskatchewan, and Epping, North
Dakota, that would send oil on existing rail lines to new
terminals in Stroud, Oklahoma.

Another option would see oil taken by rail to Port Rupert,
British Columbia, loaded onto tankers shipped down the Pacific
Coast, through the Panama Canal, and up through the Gulf of
Mexico.

Environmentalists said Keystone is critical to the
development of Alberta’s oil sands.

“They call it Keystone for a reason,” Bill McKibbon, who
heads 350.org, which has been leading the opposition to the
pipeline, told reporters. “If they don’t have it, they aren’t
going to be able to develop the tar sands.”